Policy Instruments: Government Perspective

Transcription

1 Policy Instruments: Government Perspective Rocio Concha Deputy Chief Economist, DECC 18 June 2013

2 Policy formulation The policy cycle Option appraisal stages Assess policy needs and make resources available to scope it Consider evidence needs to support policy decisions & agree analysis Consider formal evaluations of policies Agree strategic business case (long-list of options) Agree go live Agree key objectives and scope of policy (Ministers) Pass required legislation (primary or secondary) Agree full business case and relevant procurement decisions Agree consultation documents & policy statements post consultation (Ministers) Agree outline business case (short list of options) Impact assessment for consultations & policy statements Interdepartmental scrutiny of Impact Assessment

3 Policy Selection Cost-Benefit Analysis Cost-Benefit Analysis is used during option appraisal as a means of ensuring that public funds are spent on activities that provide the greatest benefits to society, and that they are spent in the most efficient way. It provides the economic rationale. HM Treasury s Green Book and DECC s Supplementary Guidance on the valuation of energy use and GHG emissions form the main reference tools when conducting CBA Economic activity Changes in energy consumption and emissions Rebound effects Carbon, air quality, BUT not everything can be fully monetised (e.g. macroeconomic impacts, security of supply)

4 Monetised policy impacts: First three carbon budgets There are other reasons besides the NPV for picking options. NPV-negative polices = - 76bn* NPV-positive policies = 120bn* Zero Carbon Homes 1% RO 56% Products Policy 13% CERT Extension 8% CPF 1% ECO GD 7% EU ETS 4% FiTs 4% CERT 14% Smart Metering 6% CCS Demonstration 12% Building Regulations 17% Agriculture 6% Source: Carbon Plan (2011) *Real 2011 prices Transport Policies 21% Transport Policies 22% CRC 2% RHI 2% Carbon Trust 1%

5 Policy assessment Economic, political and practical considerations Uncertainty Unintended consequences Additionality/ deadweight Quantifiable costs & benefits Policy interactions Net Present Value (NPV) Path dependency Economic factors Coalition workings Distributional impacts Unquantifiable costs & benefits Macroeconomic situation Affordability DECISION Political framework Manifesto commitments Public acceptability Practical factors International agendas, targets Ideological preference (e.g. Red Tape Challenge) Legality Enforcement

6 Policy appraisal and decision-making is broader: E.g. distributional impacts are not in the NPV

7 Policy landscape Instrument diversity Market-based instruments that price carbon emissions and tax energy EU-ETS and Carbon Price Floor, Climate Change Levy and Climate Change Agreements, CRC Energy Efficiency Scheme Energy efficiency regulations that impose minimum standards Transport, buildings and products Obligations on Energy Supply companies that aim to improve efficiency Smart meters, Energy Company Obligation Market based and financed energy efficiency Green Deal (together with the Energy Company Obligation) Supports to accelerate deployment of low carbon energy technologies Renewables obligation, feed-in-tariffs and CCS commercialisation Information, nudges Smart meters, CRC Energy Efficiency Scheme

8 April May June July August September October November December January February March April May June July August September October November December January February March April May June July August September October November December January February March April Estimated cost per installation ( /kw) Cumulative installations ('000) Case Study 1 Feed-in-Tariffs (Solar PV) 4,500 4,000 3,500 PV tariff consultation launched ,000 2,500 2,000 1,500 1, Tariffs changed for new installations Source(s): DECC statistics; Element Energy, Poyry, CEPA, Parsons Brinckerhoff

9 Case Study 1 Feed-in-Tariffs (Solar PV) The policy objective was to encourage deployment of additional smallscale low carbon electricity by individuals, businesses and communities who had not traditionally engaged in energy market. There was considerable uncertainty about potential take-up for marketdriven policies. However, this risk was not fully considered in the design of the policy. The lessons learned from this experience have been applied in reviewing the policy and elsewhere: Greater use of consumer research to gauge market potential (e.g. Heat strategy) Designing policy to deal with uncertainty: E.g. Renewable Heat Incentive degression mechanism (cost control) Improvements in our on-going monitoring (e.g. deployment and costs)

10 Case Study 2 Non-domestic emissions The sector is very heterogenous: Energy intensity Size of organisation Source of emissions (buildings/processes) Commercial (e.g. profit margins, growth rates, market concentration) CCL (LPG, gas, coal & electricity consumption*) & Fuel Duty (gas oil) EU ETS (consumption of fossil fuels) EU ETS +CPF + Levies (electricity consumed from grid**) CRC CCA (reduced CCL) Implied carbon price in the non-domestic nontraded sector (2020) This means there are different barriers to emissions abatement, needing different policy levers, which has resulted in a complex policy landscape. Burning oil Gas oil LPG Coal Natural Gas Electricity

11 Case Study 3 EU ETS

12 Case Study 3 EU ETS The EU ETS remains a cornerstone of European climate policy and will continue to be one of our main policies for GHG reductions. But the current cap is not aligned with the UK s position on emission reductions - coalition commitment to a 30% EU target in 2020 and agreed Government position on an EU target of 40/50% in 2030 or with the longer term UK target of 80% by The UK wants a reform the EU ETS, but this requires overcoming barriers It means getting EU-wide agreement. Different member states have different priorities. As a first step, UK supports European Commission proposals on back-loading (temporary withdrawal of allowances) European Parliament failed to support backloading in April; EUA prices fell to around 2.6/tCO 2 e. Backloading is a short-term, stop-gap solution the UK has called for a focus on more substantive reforms in parallel and for the Commission to bring forward legislative proposals by the end of 2013.